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Flamel Wheeling and Dealing

Flamel announces another collaboration deal.

There's no shortage of drugmakers willing to sign early-stage collaboration deals with Flamel Technologies (NASDAQ:FLML), as the company has shown this year. Yesterday, Flamel announced another deal, this time with German drugmaker Merck KGaA.

As with the recent deal with Wyeth (NYSE:WYE), few details about the collaboration with Merck were announced, leaving Fools like us to speculate about which drug this deal covers, and on what terms. Flamel did disclose that it would use its Medusa formulation technology to make an extended-release version of a Merck protein, and that it will get almost $3 million up front.

If I had to guess which Merck therapeutic Flamel might be working on, I'd say Rebif. It's a logical biologic for use with Medusa, because Flamel already has past experience using Medusa on interferons. Merck and its U.S. marketing partner, Pfizer (NYSE:PFE) -- assuming it will also market the new formulation -- could definitely benefit from another improved formulation of Rebif.

Here's why Rebif makes sense: It could differentiate itself much better from Biogen IDEC's (NASDAQ:BIIB) Avonex if an extended-release version were created. Both drugs are interferons that are dosed via injection, but Rebif currently has a much worse three-times-a-week dosing schedule, compared to Avonex's once a week.

It's no secret that Merck has been working on reformulations of Rebif. In August, the European Union approved a new formulation of the drug that will produce less injection-site adverse events, but does not improve the dosing schedule.

Combining this safer formulation of Rebif with an extended dosing schedule similar to that of Avonex (which is what Flamel's Medusa may be able to do) would significantly improve Rebif's competitive profile versus Avonex in the multibillion-dollar multiple-sclerosis drug market.

Sales of Rebif were $1.45 billion last year, and even a 2% or 3% royalty rate on such a product would be huge for Flamel. Obviously, these collaboration deals have value for Flamel beyond the up-front cash payments.

However, it would be difficult to ascribe any sort of meaningful additional intrinsic value to shares of Flamel at this point, since these deals are still in such early stages. Until we see more mature late-stage testing, it may be best to take a wait-and-see approach before declaring any meaningful change in Flamel's fortunes.